Free out calls from Skype could affect VoIP providers: analyst

Last month Internet communications company Skype Ltd. announced that all SkypeOut calls within Canada and the United States will be free for the remainder of the year. However, free long-distance calling is apparently no longer enough to strike fear in the hearts of telecommunications industry competitors. "To me it’s another evolution on the home phone front and more specifically Voice over IP," Rob Warden, VP residential marketing at Primus Telecommunications Canada Inc. tells Network Letter. "It’s using your computer versus a traditional telephone, so for me it’s not a direct competition to our TalkBroadband or our traditional home phone service. Yet it is another choice for consumers to consider." This new choice allows Skype users in Canada and the US to make calls from their computers to traditional landline and wireless phones in either country for free – the calls used to cost two cents per minute. While the timing of the offer could suggest it was intended to try and push down broadband phone company Vonage Holdings Inc.’s initial public offering, providing free calling for the remainder of the year certainly extends the implications to other telecom providers. "I wouldn’t say there’s going to be zero impact because that would be foolish," continues Warden. " we see the impact being small. We’re obviously going to keep an eye on it, but we’re not rushing to change our pricing or anything like that." The main reason Primus isn’t alarmed is because it doesn’t classify SkypeOut as the same type of service as its TalkBroad-band VoIP offering. Warden says that Skype is marketed as an additional calling service on top of a home phone, but Primus’ product is a replacement for a traditional landline. However, Brian Sharwood, an analyst for the Seaboard Group, says Skype could be using this offer to increase its user base and move more into the mainstream. "It’s trying to encourage people to use the phone part of SkypeOut into the public telephone network, sort of expanding the customer base and beginning to realize this is a viable alternative. It’s not just computer to computer," he says. Sharwood points to the website SkypeJournal.com, which states there are more than 6 million concurrent users on Skype and about 30 million active weekly users, as proof of the service’s growth. Free calling for the rest of the year should pay off for the company, adds Sharwood. "It’s going to cost them a lot of money because they still need the interconnects into the public phone network, but it increases the publicity of Skye and kind of… brings it into the mainstream as well," he says. "People can use this to order pizza on and things like that." At the very least, if Skype doesn’t make it into the mainstream right away its increased exposure as the latest viable home communication service further legitimizes VoIP. Although it seems like only months ago that the main concern was the erosion of traditional landline subscriptions due to the presence of VoIP, now the discussion turns to the impact of Skype on the alternative Voice over IP providers. "You can almost count Vonage and Primus and those sort of things in the traditional phone category and Skype as being kind of a new category," says Sharwood. "Certainly in the last little while I’ve heard of more people who’ve got VoIP in their house who I wouldn’t categorize as new adopters." It’s these new adopters – the consumers who got a VoIP connection because they like to try the latest communications tools available – that Sharwood thinks could cause some churn to the VoIP providers by moving to Skype. The possibility also exists that households using a VoIP line as the second phone to their traditional landline could see SkypeOut as a cheaper second option. To that, Warden reiterates the fact that Primus’ service is a replacement, adding that many customers who take TalkBroadband as a second home line eventually drop their landline in favour of it, something that’s not possible with Skype. Warden adds that based on what he’s heard, the quality of Skype’s service, particularly with SkypeOut, is not great. Of course one of the early knocks on VoIP was that quality wasn’t as good as traditional phone line, so it could be part of the growing pains. However, with VoIP providers you are paying to get customer and tech support, but Skype’s support system is limited to frequently asked questions, user guides, announcements, and an email support request option on the company’s website. "When you’re combating Skype, customer service is important because they can’t do it," says Sharwood. He thinks that the free calling offer will remain beyond the end of the year, so home phone providers may be combating Skype for a while. Warden says that won’t change Primus’ strategy much. "The longer it’s out there and the more they grow their customer base and the more people potentially talk about it, yes, it could have some impact on us as well as any home phone provider quite frankly," says Warden. "We’re going to keep an eye on it and any marketing that they do, but we think our product is priced pretty well, it’s aggressive versus other replacement services out there, so we’re not seeing a need to be responding with an improved price based on the Skype offering because we consider them to be a very different product."

Free out calls from Skype could affect VoIP providers: analyst

News | 06/08/2006 4:00 am EDT

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